Article / 29 September 2016 at 8:00 GMT

From the Floor: Risk riding high on Opec deal

Your Next Trade
  • Oil producers agree to preliminary production cut deal in Algiers
  • Opec news sends risky assets soaring, yen in full retreat
  • 'Twitter may be overvalued at this stage': Garnry
  • USDJPY breakout places pair in view of important resistance
  • Malaysian ringgit shoots higher on Opec agreement
From the Floor
By  Michael McKenna

News of a preliminary production cut deal between Opec members was this morning's "shot heard 'round the world" as crude soared, equities rallied, the yen beat a conclusive retreat, and the Malaysian ringgit jumped against USD in a show of strength from Asia's only major oil nation.

In terms of the deal itself, however, the headline surprise masks many key questions. Among them, said Saxo Global Sales head Christoffer Moltke-Leth on today's morning call, are the quotas for individual nations as well as how the cartel plans to deal with "a track record of non-compliance".

It is the former issue that weighs on Saxo Bank commodities head Ole Hansen, who this morning asked "who is going to cut given some members including Nigeria, Libya, and not least Iran are expected to be excluded?". Hansen also notes that there remain ambiguities surrounding the production estimates to be used in calculating the deal and when the cuts will actually come into effect.

Despite these very real and very pressing concerns, however, markets this morning chose to err on the side of jubilant certainty as stocks powered ahead in Asia and the USDJPY spiked on the rally in risk sentiment.

"USDJPY has now entirely erased its post-Bank of Japan, post-Federal Open Market Committee move," says Saxo Bank head of forex strategy John J Hardy, adding that the pair has broken determinedly free of what was becoming a fairly stagnant range and now faces key resistance levels to the upside.

USDJPY

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Source: Saxo Bank 

In stocks, Saxo Bank head of equity strategy Peter Garnry reports that he has exited a short position in Subsea 7 on the Opec news; the offshore engineering and services firm gapped higher from below 82 NOK to just under 86 NOK today, but the move still left Garnry with a comfortable profit from the short trade's opening level of 91.85.

Beyond oil, Garnry also says that he is planning a move back into insurer Generali and sounds a note of caution on Twitter, whose shares have been on a rampage of late due to buyout speculation.

"We have seen a raft of negative analysis on Twitter," says Garnry, adding that potential bidders such as Disney, Alphabet, and Salesforce may have to pay a substantial premium should they wish to acquire the high-profile social media company.

"Twitter may well be overvalued," says Garnry, concluding that he will add a stop at 22.40 to his long position opened in the mid-14s.

In terms of reasons to rally, we will take soaring oil prices over, say, the media's entrails-reading following the US presidential debate or for that matter, the Federal Reserve's deciding that the US economy is too weak to abandon the easing party. 

That said, the real impact of the Opec deal could fall decidedly short of the headline-driven celebration, so watch this space.

Riyadh
Restless in Riyadh? The Saudis may have cut a deal, but there remains 
a lot of hedging behind the headlines. Photo: iStock

Michael McKenna is an editor at TradingFloor.com

From the Floor takes advantage of TradingFloor.com's unique real-time access to Saxo Bank’s various trading desks around the globe to put our community in touch with the developments that matter to their portfolios.  
29 September
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